Qld govt contracting plan risks 700 jobs

Both of the two proposed models to simplify the Queensland Government's system for hiring IT contractors could lead to the loss of hundreds of jobs and a number of small business closures, according to a new report by analyst firm Longhaus.

Both of the two proposed models to simplify the Queensland Government's system for hiring IT contractors could lead to the loss of hundreds of jobs and a number of small business closures, according to a new report by analyst firm Longhaus.

Concerned at how much it was spending on IT contractors, the Queensland
Government had proposed a new model for procuring the ad-hoc
workforce it used, hoping to reduce its spend by 5 to 10 per
cent. The IT recruitment industry has proposed an alternative model.

According to Longhaus, the Queensland Government sources
2419 of its total 6158-strong IT workforce from the IT labour
hire industry — around 39 per cent. This put the value of the Queensland
Government ICT contracting market at around $268 million, meaning
savings of around $25 million would be achieved if 10 per cent of the
government's costs could be trimmed.

The government model

The Queensland Government's new model involves having one master
recruitment vendor for those employees it sources to fill its ad-hoc IT needs.

The IT labour hire industry has previously expressed its horror at the model,
concerned it would damage the IT contracting industry irreparably.
Meanwhile, others in the general IT industry thought it would be a
good idea, allowing the contractors more scope to negotiate for
their own work and stopping the recruitment companies from
discouraging workers from taking on permanent work with the
government via contract clauses which trigger hefty payments.

The verdict
Longhaus (commissioned to do an impact study by the IT
Contractor and Recruitment Association) said that the Queensland
Government had been paying 5 to 20 per cent more than its
state government counterparts for IT contractors, but it wasn't
convinced that the government's model was the correct way to cut costs.

The model, according to Longhaus, would cause over $200 million
in revenue loss for the industry, up to hundreds of companies going
out of business and the loss of around 700 jobs.

The industry could likely still have a role in first-time
placements, according to Longhaus, but wouldn't receive any revenue
for contract renewals, which would all be carried out by the master
vendor. Since 82 per cent of the government's labour force is on
contract renewal, this meant $220 million in revenue
would be funnelled through the master vendor and not the industry,
leading to a minimum of 327 companies going broke, Longhaus said,
while 644 would be at risk of failure.

$75 million — which would have
been spent on IT software and hardware by those companies &mdash would not
be spent, and assuming 82 per cent of the IT workers were
hired via the master vendor, 699 people would lose their jobs.

Longhaus also raised concerns that the model might be considered
anti-competitive and end in the government incurring extra costs
because the master vendor passed on extra payroll tax costs, and
wouldn't address the loose nature of the accreditation scheme to become a
labour hire firm to the government, which Longhaus considered to be a large part of the problem.

On top of these concerns, Longhaus said that the government sourced much of its temporary
workforce via consulting or IT services firms, which it
has indicated won't be included in the first version of its new model. In fact, the number of
contractors the new model would affect could be as little as 604. This
could mean savings from implementing the model would sink much
lower than the $25 million mentioned, possibly not even covering the costs of implementation.

The industry model

Instead of having one master vendor, the industry suggested that
the agencies source their needs from a limited pool of accredited
suppliers. Those suppliers had to strike the contracts via a
centralised invoicing station for better transparency. The
government's procurement office would also formulate policy guidelines, setting
contractual terms and conditions such as rates, on-costs and
contracted margins.

This system would supposedly allow governance of prices and
conduct via self-regulation with guidelines and agreed codes of
conduct.

The verdict
According to Longhaus, this model wouldn't affect the industry
as much, since the money for recurring contracts would still go into the industry. Yet it would still have an impact, with small businesses to take
the biggest hit: the model would see revenue transferred from
unaccredited firms to those "limited" number of upper firms.

"Under the alternative model, it is likely that many SMEs would
not meet agreed regulated eligibility or performance requirements
for entry into the limited supplier pool," Longhaus said.

Companies with less than 25 people to their name made up for 50
per cent of the supply of contractors delivered to government,
Longhaus said, although their services were generally more expensive
because they lacked economies of scale.

The industry model would see 700 SMEs forced to leave the market or get
themselves accredited, the research house said, with the same
downstream spend lost as for the government model.

Yet the model could save the government more than its planned
5 to 10 per cent, Longhaus believed, coming out at 12 per cent
— or savings of $30 million. Another major benefit would be that the
government wouldn't need to spend as much to implement this model.